Focus On Your Value Proposition

Marco Zappacosta

It’s not easy to tell 10,000 paying customers that you’re canceling their subscriptions, let alone turning off millions of dollars of recurring revenue. But that’s what we had to do in order to build an enduring business.

We’ve gone through three different business models in order to find the one that’s best for us. The thing that got us to our current one, which I suspect is the one we’ll keep, is a relentless focus on the places where we provide the most value.

Whenever we needed direction we always came back to this, looking at it with more granularity as our understanding of our business deepened.

Thumbtack is a marketplace for customers to find service professionals such as plumbers and caterers who are nearby and available to do the job. When we launched the site in 2010, we charged a commission on every job that was initiated through the site. We didn’t process the transactions, so we relied on the professionals to let us know when they landed a job through Thumbtack.

We knew we couldn’t guarantee that we were getting paid, but at the time we weren’t concerned about it. Our focus was on bringing as many people into our marketplace as possible. We charged more as a reminder to our professionals that someday they’d have to pay us.

In mid 2011 we decided that it was time to charge for our services in earnest. We ran an audit of the number of jobs completed through Thumbtack and the number that we were getting paid for. We weren’t getting close to what we should.

What we realized was that in order to support a commission model we needed to provide a service at the point where the customer and the professional closed the deal. We couldn’t do that unless we built an invoicing and payments offering that integrated with our pros’ scheduling systems and that was compelling and simple enough to be completely self-serve. That was beyond the scope of our resources.

So we thought about where we were providing value and decided to start charging a subscription to professionals that gave them the ability to bid on jobs. This was great in the sense that it made the value proposition to the professional very clear -- it was a fixed monthly cost they could budget for. We soon got about 10,000 paying pros.

We were closer, but the limits of the new approach soon became clear. Revenue wouldn’t grow monotonically when we added new customers. We could double the number of requests we received and revenue growth would ultimately taper off as subscriber penetration peaked. This meant that our fastest-growing markets were our worst performers.

Because it was free to bid for a job once you had a subscription, we also created an incentive for professionals to bid on every job regardless of fit, which ended up being bad for customers.

So we rethought it again and this time got much more granular on the point in the process where we created the most value. We concluded that was when a customer and service pro get introduced.

Now we monetize this introduction by making professionals pay a fixed amount each time they decide to reach out to a customer. Our revenue grows with each customer. Professionals love it because they only bid on the jobs they’re interested in. And once they make contact with the prospect it’s up to them to close the deal. That fits well with the way they are used to running their businesses.

This isn’t meant to be a discussion on the merits and demerits of different business models -- that’s a much longer conversation -- but instead is offered as an example of the power of focusing on where you provide the most value.